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Nutanix (NTNX) Up 8.4% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Nutanix (NTNX - Free Report) . Shares have added about 8.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Nutanix due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Nutanix's Earnings and Revenues Beat Estimates in Q4

Nutanix incurred fourth-quarter fiscal 2019 loss of 57 cents per share, narrower than the Zacks Consensus Estimate of a loss of 64 cents. However, the figure was wider than the year-ago quarter’s loss of 11 cents.

Revenues decreased 1.3% year over year to $299.9 million but beat the consensus mark of $293 million.

Product revenues (62.1% of revenues) fell 17.1% year over year to $186.3 million, primarily due to 63.7% decline in hardware revenues and 8.2% in software revenues.

Support, entitlements & other services revenues (37.9% of revenues) soared 43.5% to $113.5 million.

Top-Line Details

Subscription revenues (65.2% of revenues) jumped 71.6% from the year-ago quarter to $195.6 million. Professional services revenues (3% of revenues) grew 29.8% to $9 million.

Non-Portable Software revenues (27.4% of revenues) plunged 44.1% year over year to $82.2 million. Moreover, hardware revenues (4.3% of revenues) were $13 million.

Billings were down 5.9% year over year to $371.7 million. Software and Support billings were flat at $358.7 million.

Subscription billings accounted for 71% of total billings, up from 65% in the previous quarter.

The bill to revenue ratio was 1.24 compared with 1.2 in the previous quarter.

At the end of the quarter, Nutanix had 14,180 customers. The company added 990 customers (including 31 new Global 2000) in the reported quarter.

Nutanix now has 16 customers, with a lifetime spend of more than $20 million. Of these, six have more than $30 million in lifetime bookings.

The company’s hypervisor, AHV, experienced a 47% increase in adoption on a rolling four-quarter basis.    

Margin

In the fiscal fourth quarter, the company delivered a non-GAAP gross profit of $239.9 million, up 1.6% year over year. Non-GAAP gross margin expanded 230 basis points (bps) on a year-over-year basis to 80%.

Operating expenses on a non-GAAP basis jumped 34.1% year over year to $377.1 million. Sales & marketing, research & development and general & administrative expenses increased 36.9%, 34.7% and 13.9% on a year-over-year basis, respectively.

Operating loss on a non-GAAP basis widened to $104.6 million from a loss of $19.7 million in the year-ago quarter.

Balance Sheet & Cash Flow

As of Jul 31, 2019, cash and cash equivalents plus short-term investments were $934.3 million compared with $941 million as of Apr 30.

Cash outflow from operations was $9.7 million compared with an outflow of $36 million in the previous quarter.

Free cash outflow was $33.3 million compared with an outflow of $33 million in the prior quarter.

Deferred revenues surged 44% year over year to $910 million at the end of the reported quarter.

Guidance

For the first quarter of fiscal 2020, software and support revenues are projected between $290 million and $300 million. Nutanix anticipates software and support billings of $360-$370 million.

Hardware revenues are expected to be 3% or less of total bookings.

Non-GAAP gross margin is anticipated to be around 80%. Moreover, management forecasts operating expenses of $385-$390 million.

Nutanix estimates non-GAAP loss per share to be 75 cents.

For fiscal 2020, Nutanix expects software and support billings between $1.65 billion and $1.75 billion. Software and support revenues are expected between $1.3 billion and $1.4 billion.

Hardware billings and revenues are projected to be 2% or less of billings.

Nutanix expects gross margin of roughly 80% for fiscal 2020. Operating expenses are expected between $1.65 billion and $1.7 billion.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -25.73% due to these changes.

VGM Scores

Currently, Nutanix has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Nutanix has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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